What is product sourcing and manufacturing sourcing?
What is Manufacturing Sourcing?
Manufacturing sourcing is the process of finding and acquiring the goods or services your business needs. It involves research, evaluation, negotiation with suppliers, as well as managing the quality, delivery, and costs of the products.
In this article, we will explore some common manufacturing sourcing models and types, and how they impact your business performance and competitiveness. We will also discuss some key trends and innovations in product sourcing that you should follow or adopt to stay ahead.
Sourcing Manufacturers: Which Type is Right for Your Production?
I’ve noticed that many buyers are often unsure about their choices when it comes to selecting manufacturers. I aim to provide clarity on the available options.
(This particularly applies to those importing electrical and/or mechanical products from regions such as China, Vietnam, Thailand, Malaysia, and Taiwan).
The Three Types of Manufacturers
You may have encountered these acronyms to describe various manufacturer types. Here’s a concise overview of each:
ODM (Original Design Manufacturer):
ODMs design and produce a product and own the intellectual property (IP) rights for it. They permit customers to brand the product with their logo and make minor adjustments.
OEM (Original Equipment Manufacturer):
In the case of OEMs, you bring a design, and they leverage their existing technical knowledge and supplier relationships to develop your product. They generally don’t charge for engineering time or sourcing work and often retain IP rights without revealing component sources.
CM (Contract Manufacturer):
With CMs, you provide the design, but they offer more transparency. You expect a higher level of professionalism and pay for their services. You retain all IP, including drawings, schematics, tooling, the bill of materials, and more.
Guide on How to Source Manufacturers
Turning your product ideas into reality requires finding the right manufacturer. Follow these six steps to discover the best manufacturers and suppliers for your business.
Research Your Options:
Utilize Google to find manufacturers near you. Explore their websites, customer reviews, and product specialties.
Seek referrals from professional networks and online communities.
Use NAICS codes to classify manufacturers and products for easier identification.
Explore Alibaba for both existing products and custom manufacturing. Ensure the manufacturers meet specific qualifications.
Conduct Outreach and Collect Information:
Reach out to potential manufacturers and gather at least three quotes for comparison.
Assess their ability to handle custom orders, automation features, lead times, shipping costs, and minimum order quantities (MOQs).
Negotiate MOQs and cost per unit, inquire about exclusivity, setup fees, defect policies, and evaluate the manufacturer’s sustainability and ethics.
Communicate Your Designs:
Inquire if the manufacturer can bring your design to life. Provide sketches, instructions, or reference photos.
Consider hiring freelancers from platforms like Fiverr or Upwork for design assistance.
Explore the option of working with a local designer for cost-effective prototyping.
Order Samples and Compare:
Before placing a full order, request samples to test and compare.
Date and sign the approved sample for quality control purposes.
Between receiving samples and placing an order, continue negotiating terms on payment, MOQ, and other relevant factors.
Foster a collaborative relationship with the manufacturer for mutual benefit.
Place Your Order:
Conduct a quality control check to ensure products meet your standards.
Once satisfied, place your order and initiate the production process.
Remember, building relationships with suitable suppliers is a crucial decision for your business. While challenges may arise, patience and perseverance will lead you to the ideal partners for your venture.
How to Make the Right Sourcing Decision?
To make the correct sourcing decision:
Partner with a company for whom your orders represent between 5% and 50% of their annual output. These percentages can vary depending on your philosophy, but the idea is to have sufficient influence to ensure satisfaction while allowing for growth without being solely responsible for their financial success.
Select ODMs for smaller orders when you don’t require extensive supply chain control. On the other hand, opt for CMs when dealing with larger orders and desiring more control.
Understand your manufacturer’s incentives. Some issues arise when working with OEM factories for extensive production runs, affecting quality, delivery time, and costs. The OEM model may lack the incentive to invest time in engineering work necessary for risk reduction in mass production. If a manufacturer cannot describe their product development process, it likely means they don’t have one, and partnering with them for new product development is not advisable.
Consider trading companies, but be cautious. A small percentage of trading companies (perhaps 5% to 10%) genuinely add value. Ensure they transparently represent the realities of the actual manufacturer producing the products. I’ve previously discussed some of the hidden aspects of trading companies and why newcomers are more susceptible to their allure.
How to Develop a Sourcing Strategy？
Originating from your global strategy, your sourcing strategy reflects the company’s objectives and priorities. Additional factors are then added to the Quality-Cost-Delivery trio:
- Portfolio and procurement cycle. Clearly define your objectives and internal needs and ensure they align with the company’s goals. Determine the number and profile of suppliers required for each product type.
- Importance of the product. Your approach may vary depending on the significance and complexity of the equipment or consumables being sourced. For instance, the allocation of resources, both human and financial, will differ, and additional control processes will need to be followed.
- Competitive environment. Create a list of all the companies you have ever used, then conduct a “cost-benefit” analysis while comparing them to potential partners. Gain a clear understanding of the market by taking into account competitive dynamics, legal constraints, current procurement practices, and so on.
- Targeted geographic areas. There are several reasons for turning to global sourcing. Expanding the geographical origins of your supply sources ensures access to factories located abroad and facilitates the procurement of products that are unavailable in the domestic market. Other buyers turn to foreign markets in search of more favorable pricing conditions. However, alluring as certain foreign vendors’ prices may be, that should not be your sole criterion. Political, social, economic, and environmental factors can significantly impact local activities.
- Need for innovation. Co-development is an intriguing prospect, particularly for startups and small to medium-sized businesses. Industrial suppliers and clients share the costs and benefits of innovation as part of a shared goal for continuous improvement.
Where to Sourcing Manufacturer?
An additional avenue for conducting manufacturer research is by using online supplier directories. These directories function as comprehensive catalogs featuring profiles of numerous manufacturers, wholesalers, and suppliers. Some of the well-known directories, catering to both domestic and international suppliers, include:
Domestic Online Directories:
- Maker’s Row
- Council of Manufacturing Associations Member Organizations
Overseas Online Directories:
- Global Sourcing Specialists
- Dun & Bradstreet
Sourcing suppliers and manufacturers represents a necessary expense when launching a business. Selecting suppliers that align well with your business is a pivotal decision for your new venture, and locating them can often be a challenging task.
While it can be discouraging when you encounter obstacles or reach impasses, in many instances, all it takes is a bit more patience and determination to discover the ideal partner for your budding enterprise.
By considering all these factors, you will be able to develop a sourcing strategy adapted to manufacturing sourcing process.